These 2 dividend stars are far too cheap to miss

PayPoint

With ITV (LSE: ITV) currently dealing at levels not seen since last December, I reckon now is the time for savvy dip buyers to pile in.

The political turmoil created by Thursday’s inconclusive general election result — and in particular concerns over what this means for Brexit negotiations — has exacerbated fears that ITV could face a further deterioration in advertising revenues many months into the future.

Whilst such jitters are of course understandable, I believe the strength of ITV’s other operations should not only take much of the sting out of these problems, but should set the broadcasting giant up for spectacular long-term revenues growth. Sales at ITV Studios continue to tear higher, for example, and rose 7% during January-March thanks to the strength of new and returning shows.

Packed with value

The City expects trouble in the advertising market to force ITV into a rare earnings fall in 2017, and a 7% decline is currently anticipated. But supported by strength elsewhere, the number crunchers expect the business to move back into growth with a 4% advance next year.

And this sunny long-term outlook is expected to keep ITV’s ultra-progressive dividend policy on the boil. Indeed, last year’s reward of 7.2p per share is predicted to rise to 8p in the present period, and again to 9.5p in 2018.

As a result, ITV’s already-generous yield of 4.3% for 2017 leaps to a staggering 5.2% for next year. By comparison the FTSE 100 forward average yield stands at 3.5%.

With the broadcaster also dealing on a forward P/E ratio of 11.5 times, I reckon ITV is a brilliant pick for those seeking dividend stars at rock-bottom valuations.

Money master

In my opinion Paypoint (LSE: PAY) is another London income stock offering plenty of upside at current prices.

The payment systems giant has also sunk to its cheapest since late last year after announcing a recent slump in transaction numbers. Having executed 654.8m transactions in the year to March 2017, this was down 13.4m from the prior year and was caused by a 3.6% decline in payments carried out in its core UK marketplace.

Still, I believe the huge investment Paypoint has made to enhance its retail solutions should pave the way for strong sales growth in the coming years. Adoption of the firm’s Paypoint One terminals launched last year remains strong (it currently has more than 4,227 machines in operation), while its entry into new areas like the electronic point of sale (or EpoS) segment also offers plenty of opportunity.

Dynamite dividends

Like ITV, the abacus bashers expect Paypoint to endure a little profits pain in the near term, and a 5% bottom-line dip is currently anticipated for the year to March 2018. However, the business is expected to get back into gear with a 3% rise in fiscal 2019.

Consequently Paypoint deals on a prospective P/E multiple that is bang in line with the widely-regarded value yardstick of 15 times. But this is not the only reason for celebration as market-mashing dividends are expected too.

For the current year, an 81.1p per share payout is estimated, yielding a titanic 8.8%. And this is expected to step to 81.2p in 2019, pushing the yield to 8.9%.

Be prepared for these worrying times

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More reading

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of PayPoint. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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